There is an interesting article in this weeks Economist on maximizing value from downloadable music sales. There were some numbers in the article I found very interesting:
“The exercises showed that even a uniform price per song that maximised revenue among the students was quite high—$2.30 in 2008 and $1.46 in 2009.”
So between 2008 and 2009 the amount people were prepared to pay for a download decreased by almost 40%. What is the implication of this for the recording industry? My read of it is that the quality of music has declined, and that people are willing to pay far less for new music. Now a one year gap seems too short for such a dramatic decline in price, and I suppose much of that shift could be due to changed spending priorities in the wake of the great recession, but it still leaves some interesting questions.
I would be interested to see if music were grouped by the year in which it was released, how much people would be prepared to pay for a song from that year. I wonder if in fact there would be a downward trend over the decades. I’m sure there is a PhD thesis as well as a looming threat to the music industry’s business model in there somewhere.
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“The exercises showed that even a uniform price per song that maximised revenue among the students was quite high—$2.30 in 2008 and $1.46 in 2009.”
So between 2008 and 2009 the amount people were prepared to pay for a download decreased by almost 40%.
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Careful. There's a big difference between willingness to pay, and revenue maximizing price. Supply & demand, and elasticities come in to play here.
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What is the implication of this for the recording industry? My read of it is that the quality of music has declined, and that people are willing to pay far less for new music.
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I'm not sure this is the take away lesson. People on a _survey_ had different demand curves in different years, resulting in different revenue maximization prices. People's preferences have changed, but not all the variables were held constant over time, so you can't make the quality argument. If you surveyed people in 1999 and 2009 about what they'd expect to pay for a computer, the price would have decreased significantly, but does that mean the quality is lower?
MikeG
Oh yeah, the paper is worth reading. They cover a bunch of the concerns, and bring up the price anchoring caveat.
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